MoneySupply: Why the BoE is talking nonsense

Nonsense is a rude word. But there isn’t a milder way of describing the Bank of England’s estimates of UK labour market slack.

For three inflation reports in a row, the BoE has published a chart (below) showing its model of labour market slack with accompanying text highlighting its great importance in the monetary policy decision. “One of the key determinants of inflationary pressures in the economy is spare capacity or slack – that is the balance between demand and supply,” the November inflation report states.